Reclaiming VAT

Overview

1. What you can and can’t reclaim

You can usually reclaim the VAT paid on goods and services purchased for use in your business.

If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.

Examples

Half of your mobile phone calls are private. You can reclaim 50% of the VAT on the purchase price and the service plan.

You work from home and your office takes up 20% of the floor space in your house. You can reclaim 20% of the VAT on your utility bills.

You must keep records to support your claim and show how you arrived at the business proportion for a purchase. You must also have valid VAT invoices.

What you can’t reclaim

You can’t reclaim VAT for:

Purchases before registration

You may be able to reclaim VAT paid on goods or services bought before you registered for VAT if the purchases were made within certain time limits.

Partly exempt businesses

You need to make separate calculations for purchases that relate to both VAT-exempt and taxable supplies, eg phone bills or accountancy fees.

Business assets of £50,000 and more

There are special rules for reclaiming VAT for:

  • individual computers and single pieces of computer equipment costing £50,000 or more before VAT
  • aircraft, ships and boats costing £50,000 or more before VAT
  • land and buildings costing £250,000 or more before VAT

You may need to adjust the amount of VAT you reclaim over several years using the Capital Goods Scheme.

How your VAT refund is repaid

Log in to your HM Revenue and Customs (HMRC) online account to view any VAT refund you’re owed. Claim by submitting your VAT Return.

You need to give your account details to HMRC – even if you’ve already set up a direct debit for VAT Returns. Add or change them by going to the registration details in your VAT online account.

You will usually get your refund within 10 days of HMRC receiving your return but it may take longer. Only contact HMRC if you haven’t heard anything after 30 days.

Vehicles and fuel costs

2. Vehicles and fuel costs

Buying a new car

You may be able to reclaim all the VAT on a new car if you use it only for business.

The car must not be available for private use, and you must be able to show that it isn’t, eg it’s specified in your employee’s contract.

‘Private use’ includes travelling between home and work, unless it’s a temporary place of work.

You may also be able to claim all the VAT on a new car if it’s mainly used:

  • as a taxi
  • for driving instruction
  • for self-drive hire

Leasing a car

If you lease a car, you can usually claim 50% of the VAT. You may be able to reclaim all the VAT if the car is used only for business and is not available for private use, or is mainly used:

  • as a taxi
  • for driving instruction

Self-drive hire cars

If you hire a car to replace a company car that’s off the road, you can usually claim 50% of the VAT on the hire charge.

If you hire a car for another reason (eg you don’t have a company car), you can reclaim all the VAT if all the following apply:

  • you hire it for no more than 10 days
  • it’s used only for business
  • it’s not available for private use

Commercial vehicles

You can usually reclaim the VAT for buying a commercial vehicle (like a van, lorry or tractor) if you only use it for business.

If they’re used only for business, you can also reclaim VAT on:

Fuel costs

There are different ways of reclaiming VAT on fuel, if you don’t pay a fixed rate under the Flat Rate Scheme.

You can reclaim all the VAT on fuel if your vehicle is used only for business. There are 3 ways of handling VAT if you use the vehicle for both business and private purposes. You can:

  • reclaim all the VAT and pay the right fuel scale charge for your vehicle
  • only reclaim the VAT on fuel you use for business trips – you’ll have to keep detailed mileage records
  • choose not to reclaim any VAT, eg if your business mileage is so low that the fuel scale charge would be higher than the VAT you can reclaim

If you choose not to reclaim VAT on fuel for one vehicle you can’t reclaim VAT on any fuel for vehicles used by your business.

Additional costs

You can usually reclaim the VAT for:

  • all business-related running and maintenance costs, eg repairs or off-street parking
  • any accessories you’ve fitted for business use

You can do this even if you can’t reclaim VAT on the vehicle itself.

Used vehicles

The sales invoice for your used vehicle must show the VAT. You can’t reclaim if it doesn’t, eg if the seller uses the VAT margin scheme.

Staff travel

3. Staff travel

You can reclaim VAT on employee travel expenses for business trips, including meals and accommodation that you pay for.

You can’t reclaim VAT if you pay your employees a flat rate for expenses.

There are special rules for motoring expenses.

You can’t reclaim VAT on entertainment costs.

Who counts as an employee

The following people count as employees for VAT reclaims:

  • someone directly employed by you, ie not through an agency
  • directors, partners, any other managers
  • self-employed people who are treated as employees (you can’t reclaim on travel expenses for this group)
  • helpers or stewards who help run events

The following people don’t count as employees for VAT reclaims:

  • shareholders who aren’t employed by the business
  • pensioners and former employees
  • someone applying for a job, eg interviewees

Last updated: 25 October 2016

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